In Re Motion of COLUMBIA PICTURES INDUSTRIES, INC., ET AL.,
FOR DECLATORY ORDER In Re Emergency Petition of MARINO IACOPI, et al., for
Relief Against Columbia Broadcasting System, Inc.
FEDERAL
COMMUNICATIONS COMMISSION
30 F.C.C.2d 9
RELEASE-NUMBER: FCC 71-598
June 4, 1971 Released
Adopted June 3, 1971
JUDGES:
BY THE COMMISSION: COMMISSIONERS
BURCH, CHAIRMAN; AND WELLS ABSENT; COMMISSIONER JOHNSON
CONCURRING AND ISSUING A STATEMENT.
OPINION:
[*9] 1. This
matter arises out of two separate rule making proceedings in which the
Commission concluded that it would be contrary to the public interest for the national
television networks to continue to engage in certain related business
activities. In a Second Report and Order in Docket No. 18397, 23 FCC 2d
816 (1970), we prohibited the cross ownership or control, or cross interests,
between the national television networks and CATV systems, essentially because
such cross ownership would impose a restraint upon the diversity of television
programming that cable television might otherwise provide, and would hinder the
development of new cable-oriented networks and thus have a dampening effect on
potential programming competition on the national level. Our decision in
this regard was buttressed by the predominant position held by the networks in
a broadcast industry already characterized by considerable concentration of
control. The rule adopted in this proceeding, Section 74.1131, 47 CFR
74.1131, was made effective as of August 10, 1973 for interests existing as of
July 1, 1970, and as of August 10, 1970 for interests acquired after July 1,
1970. In Docket No. 12782, by a Report and Order released May 7, 1970, 23
FCC 2d 382, reconsideration denied, 25 FCC 2d 318, we adopted a new Section
73.658(j), 47 CFR 73.658(j), which, inter alia, prohibited the networks after
September 1, 1970 from engaging in the domestic syndication of any television
programs, or the foreign syndication of programs of which they are not the sole
producers. The future reservation of any right to share in revenues or
profits in connection with the prohibited syndication was also prohibited.
n1 This rule was designed to remove
any network incentive to choose for network exhibition those [*10]
programs in which they had acquired syndication rights, and to enable
independent producers to become more competitive and independent sources of television
programming. It was also concluded that the prohibition of domestic
syndication by the networks would make for fairer competition, in light of the
networks' continuing and close relationship with the affiliates to which they
and other syndicators seek to sell programs. We noted also the conflict
of interest involved in network syndication sales to non-affiliates competing
with their affiliates. The effective date of the syndication rule has
presently been stayed pending further order of the Commission.
n1 Section 73.658(j) also prohibits
the acquisition by the networks of any interest other than the right to network
exhibition in programs produced in whole or in part by others. This
provision works with the syndication provisions to free the networks from any
conflict of interest in choosing programs for network exhibition, and to
diminish network control of the program production and distribution process.
2. In December 1970, the
Commission received two petitions alleging that the plan of Columbia
Broadcasting System, Inc. (hereafter CBS) to spin off its syndication and CATV
operations to a new corporation, Viacom International Inc. (hereafter Viacom),
would not achieve compliance with the rules. One petition was filed by a
group of companies n2 producing and distributing feature
films for television, or distributing television programming to television
stations (hereafter Columbia Pictures). The other petition was filed by
three minority stockholders (Marino Iacopi, Louis Benedetti and Frank Vardicci,
Jr.) of Television Signal Corporation, which owns a CATV system in San
Francisco (hereafter Iacopi). Upon consideration of these petitions,
CBS's response, and replies by the petitioners, we found that the information
before us, while not complete, was strongly indicative of continued common
control of CBS and Viacom, and that the question of compliance with the rules
should be determined prior to the vesting of interests by the consummation of
the spin-off. We therefore asked CBS to provide a complete statement of
the details of the proposed transaction, to be accompanied by a supporting
brief if it so desired, with leave to the other parties to respond. Our
Order also directed that no further action be taken to effectuate the
transaction pending our final decision. Memorandum Opinion and Order
released December 31, 1970, 26 FCC 2d 901.
n2 Columbia Pictures Industries,
Inc., Metro-Goldwyn-Mayer, Inc., Paramount Pictures Corporation, Paramount
Television Sales, Inc., United Artists Corporation. United Artists
Television, Inc., Universal City Studios, Inc., Universal Film Exchanges, Inc.,
MCA, Inc., Warner Bros., Inc., and Warner Bros. Distributing Corporation.
3. We now have before us the
CBS response to our December 31 Order together with further pleadings.
The basic facts of the proposed spin-off may be stated fairly briefly.
CBS proposes to distribute to its stockholders one share of Viacom stock for
each seven shares of CBS common stock held. Viacom will conduct its business
through two divisions. One of them, Viacom Enterprises, will conduct the
program distribution operations formerly conducted by a CBS subsidiary, CBS
Enterprises Inc. The other, Viacom Communications, will conduct the cable
television (CATV) operations formerly conducted by CBS. The Board of
Directors of Viacom will consist of nine directors, of whom six are persons who
have not previously been directors, not previously been directors, officers or
employees of CBS. n3 The remaining three directors, who
are the principal executive officers of Viacom, were formerly employed
[*11] by CBS. n4 Each CBS
director, officer or division president who would be entitled to receive 100 or
more shares of Viacom, and each individual stockholder who would have the right
to vote more than one percent of the outstanding common stock of Viacom, will
execute a voting trust for his Viacom stock under which the voting trustee will
vote his shares in proportion to the votes cast by all Viacom stockholders not
parties to the voting trust agreement. CBS has also stated that its
principal individual shareholders, William S. Paley, Frank Stanton and Leon
Levy, would undertake, if the Commission so orders, to reduce their holdings of
Viacom stock to below one percent of all shares outstanding within a reasonable
time -- suggested by CBS as being six years from the earliest effective date of
the rules. n5
n3 One of these directors has done
legal work for CBS subsidiaries being transferred to Viacom. CBS represents
that after the spin-off neither he nor his law firm will perform legal work for
CBS or any entity controlled by CBS.
n4 This was the situation until
March 1, 1971, when Clark B. George, the president and a director of Viacom,
resigned from both positions. He has been replaced as president but the
vacant directorship has not yet been filled. We will assume for purposes
of this decision that it will be filled with someone formerly connected with
CBS.
n5 CBS states that it is advising
those few institutional investors (other than mutual funds) who will own more
than one percent of both CBS and Viacom, and those mutual funds which may own
in excess of three percent of both companies, that they must reduce their
holdings to comply with the rules. The proposed trust arrangement will
also include the stock of William S. Paley & Co., as well as stock issuable
with respect to CBS shares previously held by the William S. Paley 1964
Trust. That trust has been revoked and the shares are now owned by
William S. Paley. CBS states that seven additional trusts exist which in
the aggregate will constitute less than one-third of one percent of Viacom
stock, and that the trustees have been advised by counsel that State law would
prohibit transfer of that stock to the proposed trust.
4. Viacom will take over the
CATV interests now operated by CBS through a number of subsidiaries. It
will also operate what formerly constituted the domestic and foreign
syndication activities of CBS. As our rules permit, CBS is retaining
profit shares in the existing television programs whose syndication rights are
being transferred to Viacom, and the Viacom syndication activities with respect
to these programs will be performed under an agreement with CBS which provides
for the payment to Viacom of its direct distribution costs plus a percentage of
gross receipts. For domestic syndication the distribution fee of Viacom
will be ten percent of all gross receipts derived from "national
sales" (each license for broadcast in a portion of the United States which
includes fifty percent or more of the television homes), twenty-five percent of
all gross receipts derived from "regional sales" (each license
covering eleven or more television stations in a portion of the United States
which includes less than fifty percent of the television homes), and forty
percent of all gross receipts derived from "local sales" (each
license for broadcast over less than eleven television stations in a portion of
the United States which includes fifty percent or more of the television homes).
CBS will retain possession and control of the original negatives and negative
elements of all programs, whether film or tape.
5. The particulars of the
transaction recited above differ in significant respects from the transaction
originally proposed by CBS. The original proposal contemplated a Viacom
Board of Directors made up of eight directors, of whom six had previous CBS
connections. The trust arrangement now proposed is also a subsequent
development. The original proposal also included an unspecified grant to
Viacom of certain rights with respect to future CBS television network produced
programs. The present agreement limits Viacom's distribution rights
[*12] to specified programs and series as to which CBS now has such
rights, and to such syndication rights as CBS may possess in those programs as
to which CBS acquires such rights and which are initially broadcast over the
CBS television network during the 1970-1971 season or during the 1971-1972
season. Certain other changes have also been made in the syndication
contract between CBS and Viacom.
6. The petitioning parties
take the position that the changes in the spin-off transaction made since its
inception have not ameliorated the defects in it which they saw at the
outset. Columbia Pictures describes the changes as "cosmetic,"
and urges that CBS has not achieved compliance with the rule barring it from
engaging in television program syndication. It points out that the
spin-off method of divestiture will leave the ownership of both companies (and,
if urges, the control of both) in the same people. It sees no remedy in
the reduction of holdings to one percent, terming the one percent figure merely
a reporting procedure in the multiple ownership and CATV rules, and insisting
that the existence of long standing personal relationships will continue
control of Viacom in those who set it up. Columbia Pictures also doubts
that sales of the stock of the two corporations on the open market can be
relied upon to disperse common ownership interests. Columbia Pictures
further sees continued CBS control through a Viacom Board of Directors and
officers selected by CBS, unaffected by the presence of a majority of
"outside" directors, and heightened by the widespread common
ownership of CBS and Viacom stock. The Columbia Pictures basic position
is that CBS should have sold its syndication business outright.
7. Columbia Pictures sees
further evidence of a lack of independence in Viacom in certain elements of the
contract between CBS and Viacom for the assignment to Viacom of syndication
rights: the failure to provide for any payment by Viacom in return for these
valuable rights; n6 the fact, as it sees it, that
payments to Viacom on future programs may vary at the sole discretion of CBS;
the existence of certain rights in CBS to discuss the number of
"runs" and other terms of Viacom's exercise of its rights; and,
finally, the importance to CBS of Viacom's success. n7 In sum, Columbia Pictures urges that the CBS-Viacom
arrangement will not change the present "involvement and the leverage
enjoyed by CBS in the television program syndication business," and that
an evidentiary hearing is needed to resolve the outstanding issues.
n6 Columbia Pictures states that CBS
is the largest syndicator of program series.
n7 It is also suggested that since
CBS assigned its syndication rights to Viacom on a quit claim basis and without
any warranty that CBS had the right of assignment, which Columbia Pictures
terms extraordinary, it is likely that CBS in fact has contracts with producers
which permit it to assign its syndication rights to any company controlled by
it or under common control with it. We asked CBS for comment on this
suggestion and they replied that, of the more than 100 CBS-producer contracts
involved, only three contain the producer agreed to modify the contract such
language. CBS also stated that in one case to permit the assignment to
Viacom, and that in the other two cases the contracts also permit a transfer of
distribution rights to the programs on condition that the transferee also enter
into an agreement identical to the original agreement with CBS, something which
we are told Viacom has agreed to do. While we do not have the
producer-CBS agreements before us, we cannot view this aspect of the record as
supporting the suggestion of Columbia Pictures that CBS must be transferring
its distribution rights to a company controlled by it, or as raising an issue
on that score.
8. Iacopi also challenges
CBS's compliance with the rules. At the outset, however, he points out
that CBS is the licensee of a number of television and radio broadcast stations
and, indirectly, the licensee of [*13] community antenna relay
station WDU-34, for which there was an application for a transfer to Viacom
which Iacopi petitioned to deny. n8
Iacopi refers to various aspects of a licensee's responsibility to operate in
the public interest, and makes a number of charges to the effect that CBS has
wrongfully dealt with the Iacopi petitioners and Television Signal Corporation,
the CATV company in which the petitioners are minority stockholders and CBS is
majority stockholder, and has attempted to dominate the CATV origination market
and prevent the development of a fourth network. n9 Iacopi urges that the community antenna relay station
license should not be permitted to be transferred without a full evidentiary
hearing on the Iacopi charges, and that in any event the licensing standards of
Section 309 of the Communications Act, 47 U.S.C. 309, should be incorporated
into this proceeding since the CATV rule involved herein (Section 74.1131) is
in effect a licensing regulation. Iacopi urges that substantial character
questions are presented as to CBS and CBS personnel moving to Viacom.
n8 The application, filed by Finer
Living, Inc., to transfer this license has been withdrawn on March 1,
1971. The petition of Iacopi filed February 22, 1971 to consolidate the
Finer Living application with this proceeding is accordingly moot.
n9 These charges appear to be
essentially the same as those made in a pending proceeding in the District
Court for the Northern District of California, Marino L. Iacopi, et al. v. The
Columbia Broadcasting System, et al., No. C-702632 RFP.
9. With respect to the compliance
of the spin-off with the requirements of Section 74.1131, Iacopi contends that
the test of compliance is the existence of control exercised in any manner, and
that CBS management will continue to control Viacom. Iacopi states that
Messrs. Paley and Stanton now control CBS and that they will be able to
control Viacom, even if their Viacom stock is in the proposed trust, because
CBS, with its great size and "an investment portfolio of over
$50,000,000" can influence the market (including investment and brokerage
houses which are said to own some forty percent of CBS stock) and control
Viacom's lines of credit and financing, Iacopi also contends that certain
information is lacking, i.e., as to proxy arrangements by CBS officers and
directors, loans by CBS and arranged by CBS to its CATV subsidiaries and
Viacom, interlocking directorates between Viacom subsidiaries and CBS
personnel, and stock held in "street" names by CBS personnel.
Iacopi contends that a full evidentiary hearing is required to explore these
issues and to resolve the question of the ties of all Viacom directors to
CBS. n10 In [*14] addition,
Iacopi believes that a hearing should be held to assess the anti-competitive
effects of the spin-off which it sees arising out of "the putting together
of both the proscribed syndication and cable functions." It sees
horizontal integration in the combination of the two types of operation.
Finally, Iacopi alleges that CBS demonstrated a lack of candor in indicating
surprise at petitioners' December 1970 filings (when CBS had been warned that
Iacopi might seek relief at the Commission); in telling the Commission that all
allegations of wrong-doing have been denied by CBS; in allegations concerning
the ownership of Nor Cal Cablevision and other matters made to the Commission
in a letter of February 2, 1971 advising that Nor Cal Television proposed to
bid for a CATV franchise at Beale Air Force Base in California; and in failing
to advise the Commission fully on details of the spin-off.
n10 Iacopi states that CBS has
acquired Tele-Bue Systems, Inc. (a CATV holding company) for its stock and that
he is advised that Homer Bergren, who owned substantially all of the stock of
Tele-Vue, continued on as an officer and director of one or more CBS subsidiaries,
and will be a substantial stockholder in CBS and Viacom. However, we are
advised by CBS that Homer Bergren has resigned as president of Tele-Vue
(remaining only as a consultant), and that he will not be an officer, director
or employee of CBS. A less than one percent stock interest in CBS held by
Bergren is not an impediment to Viacom's independence. It is also stated
that Nor Cal Cablevision, Inc., a proposed Viacom subsidiary, includes Homer
Bergren and other CBS personnel (James Leahy and Richard Forsling) in its
management. Iacopi demands a full scrutiny of all Viacom subsidiaries,
pointing out that Nor Cal is twenty percent owned by Com West, Inc., itself
formed by Tele-Vue's management. Nor Cal, a CATV company, is owned forty
percent by Tele-Vue, forty percent by McClatchy Broadcasting, and twenty
percent by Com West, Inc., which also is a CATV company. Com West was
formed by Tele-Vue, and is managed by current or past Tele-Vue
management. CBS is the owner of Tele-Vue (to be transferred to Viacom)
but has no interest in Com West. It therefore has a forty percent
interest in Nor Cal, to be assigned to Viacom. We do not see that
participation in Nor Cal by Messrs. Bergren, Leahy or Forsling (who will move
to Viacom) is inconsistent with the necessary separation of Viacom from CBS,
assuming, as Iacopi suggests, that Nor Cal should be treated as a Viacom
subsidiary. Nor do we believe that there is any question of CBS
attempting to deceive us concerning the ownership of Nor Cal.
10. The Urban Law Institute
has filed comments in which it urges that while the form of trust proposed for
the Viacom stock held by CBS officers and major stockholders will be helpful,
the crucial factors where proxies are used is management recommendations, and
that the proposed board of directors of Viacom is not satisfactory. It
points to the facts that three directors who are the major officers of Viacom
are (one is now in doubt) former CBS employees, and that two directors
represent "major consumer oriented industries" n11 which are said to prefer network dominance.
The Urban Law Institute believes that the Viacom board and officers will still
be too close to CBS. CBS, it urges, could readily sell its profitable
CATV and syndication businesses. This party also urges that CBS has
attempted to give up as little control as possible over Viacom.
n11 These are the president of Pan
American World Airways, Inc. and the executive vice president of New York Life
Insurance Company.
11. We believe, as we did at
the time of our December 31, 1970 decision herein, that the only matter
necessary and appropriate for decision in this proceeding is the compliance
with our syndication and CATV rules of the proposed Viacom spin-off. We
note in this connection that CBS has dismissed the application for a transfer
of the community antenna radio service authorization against which Iacopi filed
a petition to deny, and that CBS has announced the intention to turn in this
authorization at the time of the spin-off. However, the authorization is
presently outstanding, and CBS is of course the licensee of radio and
television broadcast stations, so that the dismissal of the transfer
application does not in itself resolve the question of the relevance of the
issues sought to be raised by Iacopi concerning the alleged character
deficiencies of CBS and individual CBS personnel who are moving to
Viacom. But we do not agree with Iacopi that this proceeding has the
attributes of a licensing proceeding, or that the public interest would be
served by treating it as a licensing proceeding. The divestiture of the
CBS syndication and CATV operations is necessary under our rules without regard
to the past conduct of CBS in other respects, and we see no point in holding up
that divestiture or making it more complicated by undertaking a full licensing
hearing on the allegations made by Iacopi with respect to CBS.
[*15] In addition, insofar as Viacom and its personnel are concerned, we
also note that we have not asserted the full panoply of licensing jurisdiction,
including appropriate character qualification, over CATV systems.
Finally, it is appropriate to take into account the fact that the Iacopi
allegations concerning past CBS dealings with Television Signal Corporation
appear to constitute essentially the same matters already being adjudicated in
a United States District Court. For these reasons, we shall limit our
decision in this proceeding to the divestiture question. n12
n12 We also believe that it would
not be good procedure to re-open this matter to determine whether a CATV and
syndication operations should be under common control. Whatever the
merits of that question, and whatever our jurisdiction to determine it, it has
a broad applicability going well beyond the particular situation involved here,
and it would needlessly delay this proceeding to attempt to resolve that new
issue before ruling on the proposed Viacom spin-off.
12. We further find that a
full adjudicatory hearing is unnecessary to resolve the issues before us.
Since, as we noted above, we are not performing the basically adjudicatory task
of determining the existence of past misconduct, but rather are considering the
structural changes necessary to insure complete divestiture by CBS of its
syndication and CATV activities, this proceeding possesses most of the
characteristics of rule making rather than adjudication. Nor have we
found substantial factual matters which might demand adjudicatory
resolution. n13 On the merits, we are persuaded
that the spin-off procedure is permissible as a means of achieving compliance,
provided that subsidiary aspects of the spin-off are properly
conditioned. While there is much to be said for a direct sale of the CBS
CATV and syndication activities, we do not find that such a sale is mandatory.
Our objective is a divestiture of control, and if that can be achieved without
a direct sale we see no need to require a direct sale. In our opinion, a
spin-off the relevant CBS operations to a new corporation whose stock will
initially be held by existing CBS stockholders is satisfactory, provided that
the conditions later set forth in this opinion are complied with. It is
true that immediately after the spin-off the same persons who own CBS will own
Viacom. However, there has already been heavy trading in both companies
since the Viacom stock began to be traded and, while it is not possible to
determine on this record how much of the stock was sold to existing CBS
stockholders, we consider the reasonable forecast to be that the stockholdings
will gradually disperse, so that the commonality of interest between CBS and
Viacom will attenuate well beyond the point where the directors and officers of
each corporation have a duty to serve the best interests of their company
without regard to the interests of the other company.
n13 We note here that while we found
the original CBS plans to raise serious questions, and while we also were not
satisfied that CBS adequately kept us informed of its plans, these matters do
not rise to the seriousness of substantial questions of candor or character.
13. However, in view of the
fact that Viacom has been created by the present CBS management, it is not
adequate to await possible voluntary disposal of the Viacom stock held by the
officers, directors, Broadcast Group division presidents, and large
stockholders (those with one percent or more of CBS common stock) n14 of CBS. We recognize that CBS has advised us
that these people have now put their Viacom shares in a trust under which the
trustee will be required to [*16] vote their stock as non-trust
stock in Viacom may be voted. This procedure would certainly go far to
avoid the possibility of direct control of Viacom by these individuals.
But, in view of the purpose of our rules, we must take necessary precautions to
insure that major CBS stockholders and employees do not have such an equity
interest in Viacom as will raise essentially the same problems we found
inherent in the existing situation. It will not do to accept a situation
in which CBS, no longer permitted to acquire syndication or profit shares in
network programs, would have an inducement to see that these interests are
granted to Viacom. Nor should we permit the possibility that CBS
affiliates will have an inducement to buy syndicated programs from Viacom
because of the continuing equity interest in Viacom of major CBS people.
Therefore, we find that the spin-off will fully comply with our rules only if
all CBS officers and directors, Broadcast Group division presidents, and any
individual stockholder with one percent or more of CBS common stock, n15 dispose of that stock within a reasonable time, to
persons other than close relatives or any organization in which they have any
substantial interest. We believe that what is required is total divestiture
of these holdings, including any stock which these individuals have the power
to vote as trustees (but not including the stock held in trust the sale of
which is forbidden by State law), as well as the stock of William S. Paley
& Co. We have been advised by CBS that the trust arrangements
proposed by it have been consummated; the stock put in such trusts should so
remain until removed for sale under the terms of this opinion. We take
this action rather than permitting reduction of the individual holdings to
below one percent because the individuals affected are not ordinary
stockholders whose holdings under one percent could safely be
disregarded. They are properly to be treated as the controlling group in
both companies, and individual holdings of less than one percent would remain
cumulatively significant. We also believe that the sale of this stock
should be accomplished within two years from the release of this opinion.
We recognize that the major provisions of the applicable rules are not yet in
effect, but, as we pointed out in our earlier opinion, the CATV rule is now in
effect insofar as the acquisition of additional CATV interests by Viacom is
concerned. We see no reason why a two year period should be unduly
burdensome or take on any of the attributes of a forced sale.
n14 We do not agree with Columbia
Pictures' contention that the one percent cut-off point contained in our rules
is merely a "reporting procedure." It is a substantive standard.
n15 Mutual funds and other
institutional investors must comply with limitations appropriate to them.
14. We find that the present
constitution of the board of directors of Viacom and its officers is
satisfactory. There is a clear majority of directors with no interest in
CBS, and no past history of CBS employment. All of the directors should
have every incentive, as well as a clear fiduciary duty, to serve only the best
interests of Viacom, whether this is in the best interests of CBS or not.
Thus, we would not expect Viacom to have any reason to hold back its CATV
development because of possible adverse impact upon CBS. This expectation
similarly applies to those officers and directors of Viacom with previous CBS
affiliation as well as to those lacking any such affiliation.
[*17] 15. We also find
unpersuasive the contentions made by Columbia Pictures concerning the terms of
the transfer of syndication rights from CBS to Viacom. Thus, in view of
the characteristics of a spin-off, we see no reason to find it strange that
Viacom is not reimbursing CBS for these rights. We also conclude that the
payments to CBS are not left to the sole discretion of CBS, n16 and that the provisions of the CBS-Viacom agreement
attesting to the importance to CBS of Viacom's successful sale of the programs
involved is not a particularly adverse factor. Iacopi's further comments
are also found to be lacking in merit. n17 The major Iacopi contentions are discussed herein; all have been
considered.
n16 We accept as a representation of
fact CBS's explanation in its letter of April 2, 1971 that distribution fees
referred to in the CBS-Viacom agreement but not specified are those set forth
in CBS-independent producer contracts, and thus not subject to the unilateral
discretion of CBS.
n17 Thus, we do not believe that Iacopi
has presented a substantial indication that CBS has a $50,000,000 fund through
which it can influence Viacom's lines of credit and financing. With
respect to the Iacopi suggestion concerning proxies, CBS has represented that
no CBS officer or director will hold or control proxies for any Viacom
stock. CBS has also stated that the trust will include stock held in
street names, and our divestiture requirement clearly includes such
stock. With respect to the Viacom suggestion that CBS may control Viacom
as a major creditor. CBS has advised us that at the time of the spin-off
neither Viacom nor any of its subsidiaries will be obligated to CBS on any loan
(an outstanding debt of Tele-Vue to CBS will be cancelled).
16. We therefore conclude that
the proposed Viacom spin-off may be permitted to be effectuated, subject to the
condition subsequent stated above with respect to certain holders of CBS common
stock, and that the spin-off subject to this condition will be in compliance
with Sections 73.658 and 74.1131 of our Rules and Regulations.
17. Accordingly, IT IS
ORDERED, That the Order adopted herein on December 31, 1970, staying to further
action to effectuate the distribution by Columbia Broadcasting System, Inc. to
its stockholders of stock in Viacom International Inc., IS DISSOLVED effectuate
upon the receipt by the Commission of statements by the persons referred to in
paragraph 13, infra, of their acceptance of the terms of this ruling.
BY
DIRECTION OF THE COMMISSION, BEN F. WAPLE, Secretary.
CONCUR:
CONCURRING OPINION OF COMMISSIONER
NICHOLAS JOHNSON
On December 31, 1970, the Commission
issued a temporary stay of the proposed spin-off by Columbia Broadcasting System,
Inc. (CBS) of its community antenna television (CATV) and television program
divisions to Viacom International, Inc. (Viacom). We found that --
[the] information before us, which includes public
statements by CBS and the Viacom registration statement filed with the
Securities and Exchange Commission, is strongly indicative of continued common
control of CBS and Viacom. Columbia Broadcasting System, Inc., 26 F.C.C.
2d 901, 903, FCC 70-1350 (1970). (Emphasis added).
Section 74.1131(a) of our Rules prohibits common ownership
of television networks and CATV systems effective August 10, 1973, as to
interests in existence on or before July 1, 1970, and on August 10, 1970, as to
subsequently acquired interests. Thus, as our prior opinion noted:
Section 74.1131(a) is now in effect
insofar as it prohibits additional acquisitions of interests in CATV systems by
the television networks. This means that a [*18] ruling would
be called for as soon as Viacom sought to increase its holdings which might be
well in advance of the August 10, 1973 date when the networks are required to
divest their CATV interests acquired prior to July 1, 1970. 26 F.C.C. 2d,
at 903-04. (Emphasis added).
The language of our rule seems to me, as our prior opinion
assumed, to require complete divestiture. The common ownership which
§ 74.1131(a) bars is defined in terms of one system which "directly
or indirectly owns, operates, controls, or has an interest in"
another. Note 1 to the rule defines "control" as follows:
"The word 'control' as used herein is not limited to majority stock
ownership, but includes actual working control in whatever manner
exercised." (Emphasis added).
I cannot believe that the
"spin-off" which we approve today will not give sufficient
"actual working control" to CBS over Viacom to distort the workings
of the marketplace and restrain trade. Specifically, (1) all of Viacom's
nine directors were selected by CBS. (2) Three members of the board of
directors are to be the three major officers of Viacom, and all three are
former employees of CBS, a relationship which the Urban Law Institute, an
O.E.O. funded legal services office, has described as follows: "long
association with the network, existing friendships, business contacts,
carefully nurtured corporate loyalties, and possibly future careers are all
linked up with CBS." (3) Of the six remaining directors, at least one, W.
Burleigh Patee, is a lawyer who has represented CBS and its subsidiaries in
legal matters in the past. (4) None of the six remaining directors is
experienced in the CATV and syndication fields, giving even more power to the
former CBS management team, all of whom have been previously employed in the
syndication or CATV divisions of CBS. (5) Viacom will operate, in effect,
as a distribution agent for CBS, selling the programs to which CBS has the
syndication rights, collecting on the sales, and remitting to CBS the proceeds
of the sale less sales fee or commission. This seems clearly to violate
our television network syndication rules which we adopted in order to prevent
the power and leverage of the networks over the production and distribution of
television programs from further stifling competition -- as well as creativity
-- in the television industry. We therefore determined to limit the
television networks' power over the program process by prohibiting them from
having any interest whatsoever, direct or indirect, in the television program
snydication business. See Network Television Broadcasting, 23 F.C.C.2d
382 (1970); Network Television Broadcasting, 26 F.C.C.2d 28 (1970); § §
73.658(j)(1)(i) and 73.658(j)(1)(ii) [currently suspended pending outcome of
appeal]. Clearly, our action today undermines this principle. (6)
Finally, although we are requiring certain CBS personnel to dispose of their
Viacom stock, influential members of the CBS corporate hierarchy will retain an
equity interest in Viacom. Thus, although we require division presidents
of the CBS "Broadcast Group" to sell their Viacom stock, division presidents
of three other CBS corporate "Groups" can retain their
holdings. This includes, inter alia, the president of CBS Electronic
Viedo Recording Division as well as the heads of such major companies as Holt,
Rinehart and Winston, Inc., Creative Playthings, CBS Records Division (the
biggest domestic [*19] producer of recorded music, according to the
CBS 1970 Annual Report) and the New York Yankees, Inc.
In short, I find this
"spin-off" to violate blatantly the letter and spirit of our
Rules. I am concurring for technical questions only (relating to
parliamentary procedure which required my vote to ameliorate this abomination a
slight amount).
I concur most unhappily.